No basis reduction under Sec. 734 in stock held by partnership in corporate partner.

AuthorSchneider, Steven

Generally, a partner and a partnership do not recognize gain or loss on a distribution of partnership property.

New Law

AJCA Section 834 provides that in applying the basis allocation rules to a distribution in liquidation of a partner's interest, a partnership is precluded from decreasing the basis of a partner's or related person's stock. Under the provision, any decrease in basis that otherwise would have been allocated to the stock is allocated to other partnership assets. If the decrease in basis exceeds the basis of the other partnership assets, the partnership recognizes gain in the amount of the excess.

Effective Date

This provision applies to distributions after Oct. 22, 2004.

Implications

The new law is intended to stop the avoidance of Sec. 732(f) by taxpayers stepping down the basis of...

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